US Treasury Allowed Excessive Pay at TARP Firms

The Treasury Department failed to curb executive pay last year for the second year running at companies rescued by the government.

WASHINGTON -- The U.S. Treasury Department
failed to curb executive pay last year for the second year
running at companies rescued by the government, an internal
watchdog charged on Monday.

The Treasury's pay czar, or "special master," was tasked
with limiting "excessive" pay at companies the government bailed
out using taxpayer money during the financial crisis.

But the Office of the Special Master did not follow the
rules it had set for compensation, instead letting companies
define pay themselves, according to a report by the inspector
general for the government's bailout program.

In 2012, the pay czar acceded to company requests in
approving multi-million dollar pay packages and pay hikes for
top executives at General Motors, AIG and Ally
Financial.

The pay czar approved all 18 pay raises requested by the
companies, for a total of $6.2 million, and approved pay
packages of at least $1 million for 68 of the 69 employees at
the companies it was overseeing, the report found.

"While taxpayers struggle to overcome the recent financial
crisis and look to the U.S. government to put a lid on
compensation for executives of firms whose missteps nearly
crippled the U.S. financial system, the U.S. Department of the
Treasury continues to allow excessive executive pay," the report
said.

Special Inspector General Christy Romero said it was not
surprising companies asked for large pay packages and higher
pay. "But what we saw in 2012 that is somewhat different than
prior years is that this time the companies pushed back on pay,
but they seemed to have met no resistance," she said in an
interview.

Romero is tasked with overseeing the government's Troubled
Asset Relief Program or TARP, which pumped $68 billion into AIG,
$50 billion in GM and $17 billion in Ally Financial, among
others, to save them from collapse during the 2007-2009 crisis.

In December, the Treasury sold the last of its common stock
in AIG and said it plans to sell its remaining shares in
automaker GM in the next year or so, leaving Ally as the last
major company that still owes the government under TARP.

The acting pay czar, Patricia Geoghegan, said her office
achieved its mission, cutting average cash compensation for the
top 25 executives at bailed-out companies from what they were
getting prior to the TARP bailout.

In 2011 and 2012, the office also froze pay for the chief
executives of General Motors, AIG, and Ally Financial.

But last year, Romero's office found pressure from financial
institutions undermined efforts to limit executive pay at
bailed-out companies, especially as some Treasury officials were
more concerned with getting TARP funds back than in limiting
pay.

Romero said the situation has worsened since then. Contrary
to recommendations the inspector general made last year, the pay
czar's office has not developed procedures for how to decide
compensation or when to determine high salaries are warranted.

"Without developing some criteria ... Treasury put itself in
a position of essentially letting the companies drive what pay
Treasury was approving," she said.

Under the rules governing pay for TARP recipients, cash
salaries are supposed to rarely exceed $500,000. But in 2012, 70
percent of the top executives at TARP recipients overseen by the
government had cash salaries of $500,000 or more, a number that
has quadrupled since 2009, the report said. Ninety-four percent
got cash compensation of $450,000 or more.

Romero said in one situation, the Treasury approved a pay
raise of $50,000 for one GM employee because the company wanted
to "do a little extra for him."

"This shows the complete lack of appreciation that GM has
for the fact that they're owned by taxpayers, and that Americans
are in tight budgets and don't have any extra (funds)," she
said.

In another case, the pay czar approved a $200,000 pay raise
for an employee of Residential Capital LLC, the bankrupt
mortgage lending unit of Ally, despite knowing the unit was
about to go bankrupt.

Romero said the government's pay curbs were unlikely to have
a lasting impact.

The report found it likely AIG will return to its "past
practices" in setting high executive compensation now that it
has repaid the government's TARP funds.

"The responsibility shifts to the Federal Reserve Board to
ensure that AIG does not encourage excessive risk taking through
compensation," the report said.

When numerous large companies went to the federal government for a bailout during the recession a few years back, one of the very first things the American people wanted curbed was exec payment. A business that failed miserably and needed Troubled Asset Relief Program help shouldn't be lining already lined pockets. However, a new report has found executive payment slightly dipped even while a number of organizations, such as GM, American International Group and Ally Financial, were receiving Troubled Asset Relief Program funding.